Aggressive and conservative investors alike need to assess a range of risks when they consider how much to invest in stocks for their investment portfolios

Smart investors balance aggressive and conservative investments in their portfolio, in line with their investment objectives, and the market outlook. Above all, they avoid the urge to become more aggressive as prices rise and more conservative as prices fall.

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How much to invest in stocks for the aggressive segment of your portfolio

Aggressive stocks typically don’t have a secure hold on a growing market or at least the stable clientele that conservative stocks have. When something goes wrong with aggressive investments, there is great risk of serious, if not total, loss.

When we single out our aggressive favourites, we try to choose those with as much underlying value and as many hidden assets as possible. This is the best way, for both conservative and aggressive investors alike, to cut risk with those stocks.

Our stock selections for the aggressive investor tend to be more volatile than our conservative recommendations, and they can give you bigger gains and bigger losses. This may be due to financial leverage, or to the risk in their industry or particular situation. Keep in mind that these or any aggressive investments should make up only a smaller part of most Successful Investor portfolios.

If you want to diversify your portfolio with aggressive stocks, you should first understand the chances you’ll take. They’re only suitable for investors who can accept a greater degree of risk. You can be wrong on any of your stock picks, of course. But when you’re wrong on an aggressive stock, losses are likely to be larger than with a well-established company.

Zeroing in on a handful of small to medium-sized companies can pay off nicely when it works, but it can be extremely costly when you pick too few winners and/or too many duds.

But that doesn’t mean you should avoid aggressive stocks altogether. As mentioned earlier, we recommend limiting your aggressive holdings to a smaller part of your overall portfolio. This is because aggressive stocks expose you to a greater risk of loss.

Ultimately, the percentage of your portfolio that you should hold in either conservative or aggressive investments depends on your personal circumstances and risk tolerance. An investor with a longer time horizon or without the need for current income from a portfolio can invest more money in aggressive stocks.

How much to invest in stocks on the conservative end of the spectrum

A conservative investor holds a group of stocks with the goal of achieving steady returns, including dividends, while maintaining a lower level of risk.

Conservative investing is an investment strategy that involves a focus on lower-risk, predictable and stable businesses. This strategy typically involves the purchase of blue-chip stocks and other low-risk investments. A conservative Successful Investor approach also means building a well-balanced portfolio gradually, over time. The number of stocks in your portfolio will depend on where you are in your investing career.

Our Successful Investor philosophy recommends creating a diversified conservative portfolio of mainly high-quality, mostly dividend-paying stocks spread out across most if not all of the five main economic sectors. Over time you’ll still experience a wide variation in results among your holdings, but you’ll find that at the worst of times, you won’t lose much by holding a portfolio answering that description. When times are good, this kind of portfolio will pay off nicely. By diversifying across the sectors, you also increase your chances of stumbling upon a market superstar—a stock that does two to three or more times better than the market average.

Lower-risk investments equate to safer investments. For conservative investing, focus on investing in high-quality stocks that offer hidden value.

How much to invest in stocks: Apply our 5% to 10% rule

Every case is different, because each individual has different investment objectives, acceptable risk levels and so on. But you should generally hold on to high-quality stocks, even if they have jumped in price. However, you may want to consider selling part of successful conservative stocks you own if they go way up and come to make up too much of your portfolio—say, more than 8% to 10%. In that case, it may make sense to take at least partial profits.

In investing for our clients, we rarely put much more than 5% of a portfolio into any one stock.

As well, in general, we advise against buying more of a stock if it already makes up more than 5% of your portfolio But if a stock does so well that it comes to represent, say, 10% of a client’s portfolio, we at least consider selling part of it, to cut the risk. However, every case is different.

You also need to consider your diversification across the five main economic sectors. For example, if your exposure to the more-volatile Resources sector now exceeds 30%, for example, then you may want to sell some of your Resource holdings to cut risk.

How do you decide on the amount of money to invest for your portfolio?

Do you take an aggressive or conservative approach to investing? Why do you prefer one over the other?